Posts Tagged economic theory

Atlas Shrugged revival

(The first part of this post is cross-posted from another blog of mine). As well as re-reading Atlas Shrugged for the next session of my Reading Group, I’ve also assigned The Fountainhead to a returnee student whose English is fluent. I’ve been creating worksheets for him, and will be posting them online, possibly here.

According to this press release on the website of the Ayn Rand Center for Individual Rights, sales of Rand’s blockbuster Atlas Shrugged have greatly increased this year and last year:

Reports from trade sources indicate that consumer purchases of Ayn Rand’s Atlas Shrugged have tripled in the first four months of 2009 compared to the first four months of 2008…. “Annual sales of Atlas Shrugged have been increasing for decades to a level not seen in Ayn Rand’s lifetime. Sales of the U.S. paperback editions averaged 74,000 copies a year in the 1980s, 95,000 copies a year in the 1990s and 139,000 copies a year in the current decade. After reaching an all-time high during the novel’s 50th anniversary in 2007, another new high was reached in 2008 and an even higher mark is expected for 2009.”

More than 6,500,000 copies of Atlas Shrugged have been sold to date.

This short blog entry Ayn Rand and the Tea Party Protests gives 3 reasons why so many people are buying and reading Atlas Shrugged:

Stephen Moore identified one reason in his Wall Street Journal column, “Atlas Shrugged: From Fiction to Fact in 52 Years.” Atlas Shrugged depicted a future in which America descends into economic chaos due to ever-increasing government regulations. Each new problem spawns new government controls that merely deepen the crisis. The result is a downward spiral that nearly destroys America. Many Americans are finding Rand’s predictions uncomfortably close to real-life events.

Another reason for Rand’s appeal is her emphasis on the moral dimension. One of her themes was that no country can survive when its government constantly punishes good men for their virtues and rewards bad men for their vices. Americans correctly recognize that it is unjust for the government to take money from those who have lived frugally to bail out those who have lived beyond their means. Honest men should not be forced to pay for the irresponsibility of others.

Finally, Atlas Shrugged resonates with many Americans because they recognize that our current crisis is not just about bailouts and budget deficits. It’s also about a more fundamental issue — the proper scope of government.

Yaron Brook, Director of the Ayn Rand Center, writes on the Fox News website about a fundamental point of Atlas Shrugged:

“Atlas Shrugged” argues that ideas shape society. A society that values reason, the individual, and freedom creates the United States of America. A society that denounces the mind, preaches self-sacrifice, and worships the collective creates Nazi Germany. What “Atlas” shows is how our culture’s ideas–particularly its ideas about morality–are

Atlas Shrugged
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moving us step by step away from the Founding Fathers’ ideal.

There are, of course, critical articles, ranging from the dismissive, to the abusive, to the weakly reasoned. The dismissive can be dismissed, as the author himself admits he’s never actually read any Ayn Rand:

According to my friend and former colleague Scott Galupo in the Washington Times, sales of the book had tripled through April as compared to the same time period last year. I can’t say that I’ve ever read Rand, and Scott’s assessment of the book doesn’t increase my interest

Showing great trust in Scott Galupo, a man whom he dismisses as being usually wrong, Robert Schlesinger assures his readers that the Galupo piece is worth reading, tho the excerpts he quotes suggest that the main reason Schlesinger thinks it is worth reading is because it reinforces his own preconceptions (and obviates the need to actually read the book). Galupo’s main reason for dismissing Atlas Shrugged is that he thinks it is escapist fantasy. Galupo states

that American conservatism has shown great adaptability in the face of 200 years of federal governmental expansion, but that it nonetheless still suffers fringe-nuttery, as evidenced by the Rand/Atlas resurgence.

Murray Rothbard, himself no fan of Ayn Rand and her coterie (he was a member for a while, though he seems to have always admired her novels), would have some critical (at the same time as intelligent and informative) things to say about this “great adaptability” of conservatism.

Galupo’s article refers to an (in)famous contemporary review of Atlas Shrugged by Whittaker Chambers.

The Moderate Voice is almost equally scathing:

The message of that turgid 1200-page opus, that money is the root of all good, has inspired those who need justification for extreme selfishness and for looking down at the rest of humanity as “looters” and “moochers.”

The novel has certainly inspired a large number of people, including (famously) Angelina Jolie and Alan Greenspan (and we can add Murray Rothbard whose admiration for Rand’s novels did not prevent him from seeing through the phoniness of  Rand and her admirers); I’m sure all of them were merely looking for justification for extreme selfishness. Nowhere is it explicitly stated that “money is the root of all good”, but at least one character, Francisco D’Anconia, challenges guests at a party with the following question: “You say that money is the root of all evil. Have you considered what is the root of money?” The dollar sign is admittedly used in the novel as a symbol of the vision of capitalism that Rand ascribes to the Founding Fathers (or some of them, at least).

Megan McArdle is a more sympathetic reader:

I look to Atlas Shrugged more for conveniently totable beach reading than an economic blueprint.  What’s interesting to me, though, is how many details Rand did get right–like the markets in “unfreezing” Ukrainian bank deposits, so similar to the frozen railroad bonds of Atlas Shrugged.  Or the cascading and unanticipated failures, with government officials racing to slap another fix on to fix the last failing solution.

McArdle then attempts to explain Rand’s accurate description of socialism at work:

She was able to describe these things so well, of course, because she’d seen what an economy looked like while it was being wrecked.  All of Rand’s writing is dominated by the fact that she lived through the birth pangs of Soviet Russia, and saw her family’s business destroyed by Lenin’s ideology, and extraordinarily incompetent economic management.

While the biographical background is true, it is dangerous to assume that Rand was merely describing what she had lived through, and that that explains the realism of her descriptions. What evidence is there that Rand’s writing is dominated by the fact that she lived throught the birth pangs of Soviet Russia? Rand herself rarely mentioned it or her family background. What dominates Rand’s writing is its powerful chanpioning of laissez-faire capitalism and individualism and its finely argued excoriation of socialism of any kind. Rather than her childhood experience, I would locate the explanation elsewhere. Rand dug deep into ideas to find the root principle or value at their base. Barbara Branden wrote about Rand’s adopting, at the tender age of 12 or 13

a method that she called thinking in principles… she meant the process of systematically and explicitly identifying the reasons behind each idea she held and the relation of each idea to all the rest… Later, in her novels and nonfiction lectures and essays, the meaning of thinking in principles came to focus on the “why”, by looking for the abstraction that united and explained two or more concretes (Branden, B., The Passion of Ayn Rand, New York: Doubleday, 1986, 22).

This can be confirmed by reading almost anything Rand wrote, either fiction or non-fiction (e.g. Philosophy – who needs it?). It is more likely, therefore, that Rand’s accuracy in “predicting” some of today’s events comes from her understanding of the ideas, the principles, that underpin the decisions, statements and actions taken today in the financial crisis. Rand was not of course the only one to understand the core principles and basic philosophy behind socialism, nor was she the only one to “predict” the present financial crisis, and many of those others who did predict it did not have the benefit of Rand’s childhood experience to guide them.

Ayn Rand
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Why the John Galt strategy won’t work

a fictional character made up by a terrible person
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The Mogambo Guru (TMG, as he phrase it) is a regular contributor to Bonner and Wigginson’s “The Daily Reckoning” and in a recent piece he explains why the John Galt strategy won’t work, and at the same time, why Michelle Malkin‘s strategy won’t work, either:

Dr. Helen Smith, who is a Tennessee forensic psychologist and political blogger … “dubbed the phenomenon ‘Going Galt’ last fall” which is “a reference to the famed Ayn Rand novel Atlas Shrugged, in which protagonist John Galt leads the entrepreneurial class to cease productive activities in order to starve the government of revenue.” [Ms Malkin] apparently is not interested in guns, and sums up the situation of “Going Galt” as being that “There’s only one monkey wrench that can stop the redistributionist thieves’ engine. It’s engraved with the word: Enough.”

Ayn Rand came up with this “don’t work and starve the government of revenue” idea for the fictional John Galt in her novel Atlas Shrugged, which was written in 1957 when the dollar was still more-or-less linked to gold and thus the money supply was constant.

Back then, the only place that the government could get money was to borrow it from those who had saved their money, whereas today the poor old dollar is just a piece of fiat currency or computer-embedded digital crap that the Federal Reserve can create more of anytime it wants, whether or not anybody ever saves any! Hahaha!

So, if you think that the federal government needs your stupid tax money or that you can hurt them by working less, then I laugh – Hahahaha! – at the very concept! The Fed can, literally, create unlimited amounts of credit in the banks, which becomes unlimited amounts of money, with which to buy unlimited amounts of Treasury debt so that the government can spend unlimited more amounts of money than it collects in taxes!

And the only thing you can do about it, because the amount of corruption is always at its maximum at the end of long monetary booms, is to save yourself and get rich by buying gold, which is a bet against government and their stupidity, and which is the only sure-fire, can’t miss bet you will ever have in this cold, cruel world.

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More on education

Ludwig von Mises
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I wrote earlier about whether universities have a future, a subject I’m obviously interested in as a I work in one. After writing that entry, I came across these quotes from the Austrian economist Ludwig von Mises on the subject of education and schooling:

It is often asserted that the poor man’s failure in the competition of the market is caused by his lack of education. Equality of opportunity, it is said, could be provided only by making education at every level accessible to all. There prevails today the tendency to reduce all differences among various peoples to their education and to deny the existence of inborn inequalities in intellect, will power, and character. It is not generally realized that education can never be more than indoctrination with theories and ideas already developed. Education, whatever benefits it may confer, is transmission of traditional doctrines and valuations; it is by necessity conservative. It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. They are precisely the men who defy what the school has taught them.

In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal [p. 315] to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.
– Human Action, Chapter XV The Market

and

The emphasis laid by sociologists upon mass phenomena and their idolization of the common man are an offshoot of the myth that all men are biologically equal. Whatever differences exist between individuals are caused, it is maintained, by postnatal circumstances. If all people equally enjoyed the benefits of a good education, such differences would never appear. The supporters of this doctrine are at a loss to explain the differences among graduates of the same school and the fact that many who are self-taught far excel the doctors, masters, and bachelors of the most renowned universities. They fail to see that education cannot convey to pupils more than the knowledge of their teachers. Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors.

It is hardly possible to mistake more thoroughly the meaning of history and the evolution of civilization than by concentrating one’s attention upon mass phenomena and neglecting individual men and their exploits. No mass phenomenon can be adequately treated without analyzing the ideas implied. And no new ideas spring from the mythical mind of the masses.

  • Theory and History, Chapter 11.
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A little knowledge…

Meltdown author Thomas Woods Jr writes a long but informed and informative take-down of a Huffington Post article by Thom Hartmann on the economic crisis. Woods is one smart cookie, and he starts off with an honest admission:

After eight years of watching conservatives blow trillions of dollars and comport themselves like anti-intellectual, jingoistic blockheads, I found myself ashamed to admit that the Left seemed to have all the genuine intellectuals—people who seemed to possess real curiosity, who refused to accept whatever official line the government was shelling out, and who sought genuine understanding instead of name-calling and pointless vitriol.

He then takes apart Hartmann’s argument, starting with the spelling mistakes. Picayune, say you? Perhaps, but Woods suspects the spelling mistakes point to a deeper ignorance on Hartmann’s part:

Let’s start with the economists whose ideas, according to Hartmann, led us to the current crisis.  Why, they’re “Ludwig Von Mises, Freidrich [sic] Von Hayeck [sic], Milton Friedman, Alan Greenspan, Tom Freidman [sic], Robert Rubin, Larry Summers, and Ayn Rand.”  Now I’m sporting enough to look past the fact that Hartmann makes two spelling errors in a single economist’s name.  Still, color me skeptical that Hartmann knows a blessed thing about the work of F.A. Hayek.  (I assume he thinks these people are more or less interchangeable, that Mises = Friedman = Summers = Rubin, that Mises wouldn’t have denounced at least several of these figures, and that the differences between them are probably just trivial and not worth mentioning.)

Woods offers Hartmann a challenge:

Quiz time, Thom!  Name one book on economic theory (so The Road to Serfdom, if you happen to have heard of it, doesn’t count) Hayek wrote that you’ve read, flipped through, held in your hand, or even heard of.  Stumped?  How about one article?  Stumped again?  Then why not do the decent and honorable thing and shut up until you can speak from authority rather than prejudice and ignorance?  Sound fair?

Actually, Thom, I’ll be even more sporting. You can start condemning them again once you can at least competently summarize what someone who has read them tells you they say. How’s that?

Woods then fillets like a skilled chef:

Um, Thom, Mises and Hayek opposed central banking altogether, arguing that it was not only a superfluous intervention into the market economy but also that it was destabilizing and the source of the boom-bust cycle. These men are supposed to be similar to Greenspan how, exactly?…
It goes without saying that a government central bank’s intervention into the market to push interest rates lower than the free market would have set them cannot, by definition, be the fault of the free market.  The problems Hartmann identifies in his article, as well as the ones he neglects or doesn’t know about, are mere symptoms of a more fundamental cause, namely the creation of cheap credit by the Fed. Whatever happened to leftists’ interest in “root causes”?…
Then comes the inevitable post hoc ergo propter hoc fallacy: the American economy was strong back when the top income tax rate was 90 percent, so therefore high marginal income tax rates are great for the economy! How does Hartmann know that American prosperity didn’t occur in spite of, rather than because of, those high rates?  Without the help of economic theory, which Hartmann seems allergic to, how can we decide which of these possibilities is correct?I genuinely wonder how someone like Hartmann thinks wealth is created. Nothing I can see indicates he’s given the matter much thought. The average person’s standard of living, he seems certain, occurs because we loot and shackle the wealthy, who are mere parasites on the backs of working people, the real engines of the economy.

Leaving aside the odd view that only manual laborers engage in “work,” all the brawn in the world could never have produced a steam engine or a Pentium processor.  Only when informed by the knowledge of inventors and supplied with the capital saved by capitalists can the average laborer produce the tiniest fraction of what he is today accustomed to producing. The central ingredient in a laborer’s physical productivity is the equipment and machinery at his disposal. There is nothing natural or inevitable about the availability of this productivity-enhancing capital equipment.  It comes from the wicked capitalists’ abstention from consumption, and the allocation of the unconsumed resources in capital investment.  This process is the only way the general standard of living can possibly rise.  Hartmann thinks it’s just swell to tax it.

The “accepted wisdom” today is over-simplified Keynesianism. This is what we read in the mainstream press, and hear on the television. If these are where you get your economic information from, reading Woods’ article might be the start of a de-toxification program. This is high-quality intellectual debate: the kind that informs without being devoid of humour.

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